Schumpeter and the Future?

Brad Delong argues that while dead almost six decades, Joseph Schumpeter’s economics are to the 21st century what Keynes was to the 20th century.[1] This is interesting to me because Schumpeter seemed to me to be very much stuck in past eras, particularly the industrial revolution and the Great Depression. But to view Schumpeter as a figure of the past is to confuse his economics with his politics. Delong admires the economics, while he dismisses the politics.

For Delong, the primary contribution of Schumpeter was his attempt to put long-term economic growth, emphasizing entrepreneurship and enterprise, at the “top of the discipline’s agenda.”[2] Schumpeter bemoans that the success of capitalism, which is rooted in entrepreneurship, ultimately leads to a bureaucratic society which will stifle, rather than encourage, that very entrepreneurship. These anti-entrepreneurial bureaucracies include both large corporations and government agencies, both of which rely on capitalist success, but neither of which produce the type of enterprise that Schumpeter sees as the heart of capitalism

I found it interesting that Schumpeter condemned government bureaucracy for undermining entrepreneurial creativity since he is also a fan of capitalist monopolies. Could it not be argued, and is it not now argued by free-market capitalists, that monopolies undermine entrepreneurial activities by squeezing out the smaller and newer innovators from the market. So while Delong thinks that Schumpeter’s focus on entrepreneurship and enterprise might define the next phase of the American and Western economy, Schumpeter might just be a historical footnote to a renewed interest in entrepreneurship and enterprise within the discipline of economics.

Schumpeter did not think that capitalism and democracy could exist together on a permanent basis. Like Marx, he did not think that capitalism would last. As Delong explains it, democracy cannot sustain, over a long period, the inequalities created by capitalism because the people will turn against capitalism.[3] Additionally, the social welfare programs which seek to “counter the destructive part of capitalism” could not be maintained “without strangling the sources of rapid growth.”[4] In other word, enterprise could not exist with the safety net. For Schumpeter, democracy, and not the destructive nature of capitalism is the problem. I tend to see Schumpeter as giving a more systematic approach to the Social Darwinism of the industrial era. Growth (the accumulation of wealth) was moving forward and we needed to remove all barriers to this growth, even if such barriers were democracy with it protection of the worker and the poor. This is similar to Social Darwinism, because both viewed the poor as weak elements of society that prevented larger progress. Additionally, both viewed the titans of the industrialized world and the standards of capitalist progress. Schumpeter’s respect for the destructive nature of capitalism is similar to those that are amazed by the machines of war but who fail to notice or reverence the impact upon human life.

This distrust of democracy led to what Delong calls Schumpeter’s “abysmal” political judgment.[5] He argued that Franklin Roosevelt was a “communist aiming to abolish elections and turn himself into a dictator.”[6] He argued that the Keynesian efforts of the 1930s where “counterproductive and destructive,” even though that was not the actual case.[7] He also argued that a strong Germany in the 1930s would protect Europe from communism and be a “source of peace, order, and strength in Europe.” We are well aware of how that turned out. Delong’s diagnosis of “abysmal political judgment” might be a bit of an understatement, though this could also be said of others, including both Karl Marx and Milton Friedman. This does not mean that we should reject his economic analysis, but can we really separate the political from the economic? I think what Delong is arguing is that his political writings were not as well developed and therefore should not tarnish his more theoretical and systematic works. Fair enough, but is this an accurate portrayal of Schumpeter’s work? Krugman makes a similar argument about Milton Friedman, but I am not convinced that the same can be said of Schumpeter.[8]

In Capitalism, Socialism, and Democracy, a work which Delong includes amongst Schumpeter’s greats, Schumpeter presents his views of economics and politics as being directly related.[9] If Schumpeter is going to be the “most important economist of the 21st century,” my concern is that he will be the political economist of the 21st century.[10] I already see in my students and amongst my classmates a disdain with democratic measures that might limit the growth of capitalism. The elitism, rather than the economics, of Schumpeter might turn out to be the dominant view of the 21st century. For now, I will continue to hope not.

Comments

First comment: I don’t know that Schumpeter is actually in favor of monopolies. I think that he isn’t bothered by the existence of monopolies because of creative destruction – the emergence of new industries or technologies that replace monopolies.

2nd: This sentence “Schumpeter… Read More’s respect for the destructive nature of capitalism is similar to those that are amazed by the machines of war but who fail to notice or reverence the impact upon human life” really bothers me. The term creative destruction references the ever-changing economic landscape, not a destroying force that uproots and harms people. Creative destruction improves the human condition. People are able to get what they want and the constant presence of competition means that industries (including monopolies) must be constantly improving (creative destruction).

3rd: “He also argued that a strong Germany in the 1930s would protect Europe from communism and be a ‘source of peace, order, and strength in Europe.'” Yes, he was wrong, but this is kind of fallacious argument isn’t it? Pointing out that he was wrong about Germany doesn’t mean everything else he said is wrong.

4th: Wasn’t he right about the … Read Moreexistence of capitalism and democracy? Pure capitalism does not exist anywhere, largely as a result of democratically elected leaders trying to engineer the economy to benefit their supporters in the electorate.